The sum of the Fed's monetary liabilities and the U.S. Treasury's monetary liabilities is called

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To tackle the question, let's identify what is meant by the sum of the Fed's monetary liabilities and the U.S. Treasury's monetary liabilities. This combined total is traditionally defined as the monetary base, which represents the foundational monetary aggregates in the economy.
Option 1: "the monetary base" — This is the correct choice. The monetary base (also called base money or high-powered money) equals the total of central bank liabilities (Fed's monetary liabilities) and government liabilities (Treasury's monetary liabilities). It is the base from which broader money aggregates are created.
Option 2: "currency in circulation" — While currency in circulation is a major component of the monetary base, it only accounts for the physical coins and paper money used by the public. It does not include the Fed’s other monetary liabilities or Treasury liabilities, so it is not the total base.
Option 3: "the money supply" — The money supply (e.g., M1, M2) includes currency in circulation plus various types of deposits and other near-money assets. It exceeds the base in most models and is not simply the sum of Fed and Treasury liabilities.
Option 4: "bank reserves" — Bank reserves are a component of the monetary base (they are part of the Fed’s liabilities that banks hold), but the monetary base encompasses both reserves and currency in circulation along with the Treasury’s liabilities. Thus, reserves alone do not equal the total base.
In short, the monetary base is precisely the aggregate that combines the Fed’s monetary liabilities with the Treasury’s monetary liabilities, whereas the other options describe partial components or broader measures that do not capture the full base.

ECON 161A LEC A: MONEY... Homework 3 MCQ

The sum of the Fed's monetary liabilities and the U.S. Treasury's monetary liabilities is called

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